Evolution of Corporate Entity in Islamic and Western Perspective

Abstract

Both in Islamic and western perspectives a corporation is renowned by virtue of its distinct legal personality. However, the Roman legal culture is influential in the development of western corporate system but the principles of Islamic law of contract are regarded as comprehensive business arrangements among the business communities. The principle of partnership played a significant role in the development of Islamic and western companies and their governance. Company being a separate legal entity from its shareholders has the same legal rights like an individual to enter into contractual arrangements, own property, sue and be sued in its own name rather than in the name of its shareholders. In Islamic system of state (Khilafah), companies operate in pre-determined spheres of the economy because any utility designated by Islam regarded as indispensable for the community. The Islamic law is not only presumed comprehensive but also provides elasticity for legislation to meet-out the needs of modern-society in accordance with Qur’an and Sunnah of the Prophet (SAWS). The Islamic law not only covers the personal affairs of the people but also many aspects of politics, economics, banking, business or contract law such as Shirkat al-Amwal (The Company of Capitals), Shirkat al-A‘mal (The Company of Bodies) and Shirkat al-wujooh (The Company of Reputations). These Companies may be ‘Inan (limited) and mufawadah (unlimited).